Judge allows Nadel receiver's Wells Fargo lawsuit to proceed

Burton Wiand can continue to seek millions from bank over its alleged role in a Ponzi scheme.

By JOHN HIELSCHER

The receiver in the Arthur Nadel Ponzi case can continue to pursue millions of dollars from Wells Fargo Bank over its predecessor's involvement in the scheme, a federal judge has ruled.

While he dismissed four of the counts in a lawsuit against Wells Fargo, U.S. District Judge James D. Whittemore allowed receiver Burton Wiand to pursue other claims that target $60 million in investor losses, according to an order released this month.

The lawsuit contends Wachovia Bank — now owned by Wells Fargo, the nation's fourth-largest bank — played an “essential” role in the scheme by allowing Nadel to siphon funds into shadow bank accounts.

Hundreds of investors lost $168 million in Nadel's Sarasota-based hedge funds, which collapsed in January 2009.

Nadel, dubbed a “mini-Madoff,” died last April while serving a 14-year sentence in a federal prison in North Carolina, the same facility now housing infamous Ponzi schemer Bernard Madoff.

Investors hope Wells Fargo will be a deep pocket that will allow them to recover some of the money they lost.

Wiand has already received $25 million from the Holland & Knight law firm, which prepared private placement memorandums for the funds, and $9.8 million from investment bank Goldman Sachs, which executed and cleared trades.

Whittemore ruled that Wiand could continue claims against Wells Fargo for fraudulent transfer of funds and unjust enrichment, according to the judge's April 4 order.

But the judge also tossed out other claims, including allegations that Wachovia had “actual knowledge” of Nadel's scheme.

“I'm disappointed that the judge ruled against us on the issue of the bank acting with actual knowledge,” Wiand said Tuesday. “We will go forward.”

A Wells Fargo spokeswoman said the bank will continue to defend itself against the lawsuit.

“We are pleased with the judge's ruling, but we will vigorously continue to defend those remaining claims.”

Whittemore also allowed negligence claims to go forward involving two of Nadel's six hedge funds. Investor losses in those two funds top $60 million, Wiand said.

The judge rejected claims that Wachovia should have noticed “red flags” during Nadel's 10-year scam and discerned potentially illegal activity.

“These ‘red flags' are insufficient to establish a claim for aiding and abetting because, although they may have put the bank on notice that some impropriety may have been taking place, the alleged facts do not create a strong inference of actual knowledge of wrong doing,” Whittemore wrote in his order.

The judge also dismissed a fraudulent transfer complaint against Timothy Ryan Best, a former vice president with Wachovia who was described as Nadel's “relationship manager” at the bank.

Wiand's lawsuit was originally filed in February 2012. The judge dismissed much of that complaint, but allowed Wiand to file amended suits. In the latest order, the counts were dismissed “with prejudice,” meaning they cannot be refiled.